Israel objects to Palestinian unity deal between Fatah and Hamas.

JERUSALEM — Israel suspended its involvement in peace talks Thursday after a Palestinian deal that would bring the militant Islamic group Hamas into a broader Palestinian government.

Israel's decision, announced after a six-hour Cabinet meeting, also calls for imposing new sanctions on the Palestinian Authority.

"The government of Israel will not negotiate with a Palestinian government that relies on Hamas," a statement from Prime Minister Benjamin Netanyahu's office said, noting that the Cabinet decision was unanimous.

Palestinian Authority President Mahmoud Abbas made "a pact with a murderous terrorist organization that calls for Israel's destruction," Netanyahu said, adding that Israel would not hold talks with the Palestinians as long as the unity initiative continued.

The sanctions to come include a previously announced Israeli plan to deduct Palestinian debts to Israeli companies from the tax revenue Israel collects for the frequently cash-strapped Palestinian Authority.

The reconciliation agreement and Israeli reaction were only the latest in a long chain of events that had stymied the 9-month-old peace effort, which was largely driven by U.S. Secretary of State John F. Kerry. Even before Israel's announcement, prospects were slim for extending talks beyond their deadline next week.

In Washington, U.S. officials said they would leave it to the parties to decide whether to continue the talks. State Department spokeswoman Jen Psaki said the administration's peace envoy, Martin Indyk, remained in the Mideast.

"It's always been up to the parties to make the choices needed to pursue a path to peace," she said.

Kerry spoke with Abbas on Thursday morning, emphasizing his disappointment over the unity deal with Hamas, which the United States considers a terrorist group. He reminded Abbas that Washington would deal with Hamas only if the group recognized Israel, forswore violence and agreed to observe previous Palestinian commitments on relations with Israel.

Kerry was expected to speak with Netanyahu later Thursday.

Hamas, which rules the Gaza Strip, and Fatah, which dominates the Palestinian Authority in the West Bank, agreed Wednesday to end their seven-year schism and to form by June a new Palestinian government made up of independents and technocrats. Under the deal, elections for the parliament and presidency will be held next year.

Abbas intends to issue presidential orders for implementing the agreement in coming weeks, according to news reports.

Making the unity accord a reality won't be easy. The two main Palestinian factions remain deeply divided on key issues, first and foremost the diplomatic process with Israel. Previous unity agreements fell apart.

Numerous Palestinian officials with Fatah said Thursday that unity did not negate negotiations with Israel. Abbas said reconciliation with Hamas was needed to strengthen any agreement reached with Israel.

"The two-state solution is the only game in town," Palestinian politician Jibril Rajoub told Israeli media, calling on Israel's government as well as Palestinian factions to support Abbas' policies.

Hamas' comments reflected ambiguity. Ghazi Hamad of the government in Gaza told Israeli media that Hamas has said it would accept a Palestinian state within the 1967 borders but would not recognize Israel.

To the hawks among Israeli ministers, there is little difference between Fatah and Hamas anyway.

Isaac Herzog, leader of the opposition Labor Party, tried keeping the unity move in perspective. Suggesting it was a "tactic, not strategy," he advised Israel "not to go into doomsday mode" over it and to remember that Abbas "is still the best option."

Israel has failed to recognize its strength and be "appropriately forthcoming", although both sides are at fault for the frustrated talks, according to Elie Podeh of Hebrew University's Department of Islamic and Middle Eastern studies. He sees the main problem as a "lack of determination" in leadership on both sides, where Abbas and Netanyahu are "captives" of their respective internal politics.

Podeh finds Kerry's dedication and commitment exactly "what's missing on the Israeli and Palestinian sides." Also missing, he said, is a clear Israeli policy.

"Israel has no Plan B," he said. "And I am not at all convinced it has a Plan A."

Sobelman is a special correspondent. Times staff writer Paul Richter in Washington contributed to this report.